US Election Shock Prompted EUR USD Exchange Rate Rally

Overnight markets were shocked to find that Republican nominee Donald Trump had won the US presidential election. This prompted the US Dollar to slump sharply, although some of these early losses were limited by the less inflammatory nature of Trump’s acceptance speech. Even so, the EUR USD exchange rate is trending higher on Wednesday morning in the region of 1.10.

(Previously updated 11:14 on 08/11/12)

While the latest Eurozone data has been less than encouraging this hasn’t been enough to put the EUR USD exchange rate on a downtrend, with political risk remaining the key market driving force.

Disappointing German Production Failed to Dent EUR USD Exchange Rate Ahead of US Election

Data from Germany proved decidedly mixed on Tuesday, with September’s trade surplus widening far further than forecast even as the corresponding industrial production figures proved weaker than expected. This offered only limited encouragement in the outlook of the Eurozone’s powerhouse economy, limiting the appeal of the Euro (EUR). As Carsten Brzeski, Chief Economist at ING, noted:

‘The German economy remains on an incredible roller-coaster ride. Down one minute, up the next. The combination of Brexit uncertainty, a mature business cycle and political and economic uncertainty in many important trading partners keeps the industry treading water.’

The minds of investors have been dominated by the US presidential election at the start of the week, however, with markets showing increasing jitters as the end of the race nears. Markets have priced in relatively high odds of Hillary Clinton emerging victorious, but the near memory of the Brexit shock has prompted the US Dollar (USD) to trend cautiously on Tuesday morning. As the results start to unfold overnight the Euro US Dollar (EUR USD) exchange rate is likely to see further volatility, particularly if Donald Trump makes progress in key swing states.

US Presidential Election Set to Drive US Dollar (USD) Exchange Rate Volatility

If Hillary Clinton does ultimately secure the presidency then the ‘Greenback’ is likely to see further upside bias, with markets considering her to be the less economically risky candidate. Given the already high market pricing of a Clinton victory, however, any bounce in the US Dollar could be limited. The initial investor relief of such a result would likely wear off relatively rapidly, assuming that there is no substantial challenge from the Republican camp. This would be seen to pave the way for the Federal Reserve to raise interest rates in December, though, a prospect which would weigh on the EUR USD exchange rate.

On the other hand, a Donald Trump win is expected to prompt a sharp round of selling across the board. With market confidence in the Republican candidate decidedly lacking the US Dollar would likely suffer a sharp slump, particularly if Trump is indicated to be ready to follow through on many of his election promises.

ECB Easing Speculation Forecast to Weigh on EUR USD Exchange Rate

Although investor focus looks set to remain focused on the fallout of the US presidential election for the rest of the week the Euro could nevertheless come under pressure as a number of European Central Bank (ECB) policymakers speak. Any greater hints of dovishness from ECB officials could encourage speculation that the central bank will extend its quantitative easing program at its December policy meeting. Further easing, however modest, would diminish demand for the single currency, removing further support from the EUR USD exchange rate.

Confidence in the Euro could also be boosted, though, if the latest raft of Greek data proves encouraging. Forecasts point towards improvement in both August’s unemployment rate and October’s inflation figures, signs of recovery which would bode well for the outlook of the Hellenic Republic. With worries over the future of the Greek economy already fading, a strong showing here could see the EUR USD exchange rate boosted further.

Current Interbank Exchange Rates

At the time of writing, the Euro US Dollar (EUR USD) exchange rate was trending narrowly around 1.10, while the US Dollar to Euro (USD EUR) pairing was trending in a tight range at 0.90.